Yahoo reported a modest revenue increase and a considerable drop in profit for its second quarter, along the way missing Wall Street's expectations in both categories, results that are unlikely to please its nervous shareholders.

Although Yahoo managed to defuse Carl Icahn's proxy fight this week, a rare victory in its months-long, tumultuous sparring match with shareholders and suitor Microsoft, its results for the quarter ended June 30, 2008, will probably do little to dispel doubts over its ability to survive as an independent company.

"We believe it is more efficient for Yahoo to be acquired. Scale is a competitive advantage. As a result, a combined Yahoo and Microsoft makes a great deal of sense," Financial analyst Clayton Moran from Stanford Group Company said in an e-mail interview after the results were released.

Asked whether he sees Yahoo as being on the right track or not, Moran, who has a "Hold" recommendation on the stock and a 12-month target of $24 per share, said: "Yahoo is struggling with no clear solution to reignite growth."

Yahoo had revenue of US$1.798 billion, a 6 percent increase from 2007's second quarter, the company announced Tuesday. Deducting the commissions it pays to its ad network publishers, Yahoo had revenue of $1.346 billion, up 8 percent but short of the $1.374 billion consensus expectation from financial analysts polled by Thomson Financial.

Net income fell to $131 million, or $0.09 per share, from $161 million, or $0.11 per share, in 2007's second quarter.

On a pro forma basis, taking into account one-time items, net income was $139 million, or $0.10 per share, a penny short of analysts' consensus expectation. Yahoo had pro forma net income of $163 million, or $0.12 per share, in 2007's second quarter.

Still, Yahoo's top executives repeatedly said, during a conference call to discuss the results, that they were pleased with Yahoo's performance considering the challenges it has faced, including adverse economic conditions and the distractions of the Microsoft acquisition bid and the strident controversies it has generated.

"We're executing and delivering against the strategy we laid out, even under extraordinary conditions," said CEO Jerry Yang.

CFO Blake Jorgensen said the conversion of joint broadband deals with AT&T and Rogers Communications to a revenue-sharing format, in late 2007 and early 2008, have hurt Yahoo's revenue growth this year.

Yahoo also said it saw economic conditions affect advertising revenue, especially in categories such as finance, travel and retail.

Yahoo, which has been struggling on the financial and technology fronts for the past two years, has been embroiled in a corporate soap opera since Microsoft announced a bid to acquire the company in February.

That bid collapsed in May, leading to accusations from shareholders, including Icahn, that Yahoo's managers and board had purposely sabotaged the negotiations in order to protect their own financial interests, violating their fiduciary duty to shareholders.

Yahoo's management and board have denied the accusations, which have led to shareholder lawsuits, saying they negotiated in good faith and that ultimately it was Microsoft's decision to walk away. In the meantime, Yahoo has seen a steady parade of high-profile executives leave the company in recent months.

Yahoo this week managed to reach an agreement with Icahn, who had proposed an alternate slate of director candidates for the Aug. 1 shareholder meeting in order to unseat the entire board. By expanding the board and granting Icahn three seats, Yahoo convinced the billionaire investor to call off the plan. Icahn had indicated previously that his intention was to unseat Yang as Yahoo CEO and attempt to lure Microsoft back to the negotiating table, a possibility that now seems remote.

The proxy-contest settlement "eliminates the distractions and allows us to move forward," Yang said.

An attempt by Microsoft to acquire Yahoo's search advertising business also fell through, as Yahoo instead opted for an alternate deal to outsource part of that business to rival Google.

The deal with Google raised eyebrows, since Google's dominance in search advertising is a big reason why Yahoo